Hundreds of empty shops and other businesses around the South West are costing taxpayers more than £30million a year in lost rates, figures show.
During the past five years more than £150million of potential rates income has been lost due to empty premises – and that is just in the region’s major towns and cities.
Empty shops, offices and warehouses are exempt from paying business rates for at least three months, and in some cases longer.
The idea behind the tax relief is to encourage property investment and give landlords time to find new tenants.
But the cost to the taxpayer of empty business units has now risen to more than £1billion a year across England and Wales.
In the South West, Bristol topped the rate relief table, with an eye-watering £52.4million being lost between 2014 and 2019.
Swindon was next, with £21.5million lost to the Treasury because of empty businesses.
With the figures having been released for each local authority, it shows that the largest populations usually have seen the most empty businesses, and therefore more cash lost in rates payments.
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The whole of Cornwall saw £16.4million lost over five years, ahead of Bath and North East Somerset’s £15million, Plymouth’s £13.5million, Exeter’s £10million, Gloucester’s £9.8million., Bournemouth’s £9.4million, and £5.9million in Torbay.
In 2018-19, landlords in Plymouth were exempt from paying £3.15million of rates under the scheme, in Bristol it was £9.2million and in Exeter £1.7million, for example.
In 2019 Plymouth City Council collected £86.6million in rates for all businesses and it is expecting this to rise to £90million in 2019-20. But it is still expecting to lose £2.345million in rates relief in this financial year.
Out of 7,850 taxable business units in the city, the council told the Government 750 need empty premises relief.
In Bristol, there are 16,320 businesses, but 1,828 are empty. In Exeter, there are 463 closed businesses out of 5,060.
Bristol is expecting to see £210million raised in business rates in 2019-20, but it will have lost £6.1million from empty businesses.
In Exeter, £77.3million will be gathered, but more than £2million is predicted to be lost because of closed business premises.
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Business rates are a key pressure on the high street. Business rates are the equivalent of council tax for companies and are paid by shop-owners, for example, or, for empty properties, landlords.
But while under-fire retailers, threatened by internet shopping and out-of-town trading, have been lobbying for the burden of business rates to be lightened, councils are becoming increasingly dependent on income from the tax as grants from central Government are scaled back.
Government reports have acknowledged uncertainty over the future of business rates reforms have affected councils’ financial planning. In October 2019 a select committee urged reform for what was being termed, by some business organisations, a “broken” system.
Mike Ashley's retail group has already written to the Prime Minister, urging the Government to reform the business rates system to ease current high street turmoil.
Frasers Group, which was renamed from Sports Direct International, called on Boris Johnson to make changes to transitional relief, the mechanism preventing business rates from falling in line with rent valuations.
Business groups and other retail bosses have called for business rates to match falling rents in order to ease the impact of sliding high street footfall.
Dr Kevin Muldoon-Smith, an expert in property tax from Northumbria University, said business rates were critical to the stability of local authorities.
“We have this perverse situation where local government needs tax to go up and the business community are lobbying very hard for it to go down,” he said. “But if you look at the property market, the relationship between business and bricks and mortar is changing. There’s a good chance that pool of income will start to reduce – at the very least it will be different.”
What is empty properties rates relief?
Business rates are a tax on non-domestic properties, such as shops, warehouses and pubs. They are based on a property's "rateable value", which is linked to rental value.
Business rates are separate to corporation tax, which is linked to profits. Councils do not get to keep all the rates revenue they collect. Central government usually takes a sizeable share. Relief is the cost to taxpayers.
Under law, empty business premises cannot be taxed under the business rates system for at least three months. After this time, most property owners must pay full business rates.
One consequence is that when shops and factories close suddenly, it can result in sizable shortfalls in council funds. In 2015, the collapse of Teesside Steel cost £10.4million in empty premises relief to Redcar and Cleveland council.
Some businesses can get extended empty property relief. Industrial premises, for example, are exempt for a further three months and listed buildings are exempt indefinitely.
Not all the potential income lost through empty rates relief would be retained by the local authority. Under current legislation, around half of business rates collected is retained by the local authority and the rest is returned to the government for redistribution.
Professor Paul Greenhalgh, also from Northumbria University, said: “Some vacancy might be due to businesses moving on, not closing down, they might be expanding and climbing the property ladder.
“If that vacated property is then reabsorbed in the local economy that can be quite a positive thing. I think the problem is when the unit continues to be vacant, sometimes for months or even years. The more empty property units you have hanging around, that can start blighting an area.”
Councils have long been promised a greater share of their business rates as grants from the Government are cut. Whitehall promised councils 75% retention of any growth in business rates from April 2021.
Some local authorities already have 100% business rates retention pilots in exchange for additional cuts.
The government reallocates some business rates income from richer authorities to poorer ones through a top up/tariff system. But there have been concerns rates retention could eventually increase disparity between areas.
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The Local Government Association has estimated a gap between funding needs and revenue of £8billion by 2025. Economists have warned that without additional support, councils’ public services will be eroded.
Dominic Curran, property advisor at the British Retail Consortium, said: “High among the concerns for retail firms is business rates – a tax which disproportionately harms retailers, driving shop closures and job losses, leaving empty shopfronts and harming local communities.
“It is essential that the Government makes good on its pledge to reform this broken tax system.”
Cllr Richard Watts, chair of the Local Government Association’s Resources Board, said: “Business rates are an extremely important source of income for local government and with an overall funding gap of £8billion by 2025, the Government must commit to moving forward with vital reforms, which include addressing business rates avoidance and the impact of reliefs, such as empty premises relief.”
海角视频Hospitality chief executive Kate Nicholls said: “Improving the business rates system is paramount and the Government commitment to a review is very welcome. Rates have arguably been the single biggest barrier to growth for hospitality and a shake-up of the whole business tax system is overdue.
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“Additional support for pubs, which have been hit so hard by rates in recent years is a great first step. This support does need to apply to the whole of hospitality, though.”
A HM Treasury spokesperson said: “Empty property relief strikes a balance between incentivising property owners to put vacant properties to use, while not penalising those who lose a tenant at short notice.
“Whilst the rate of business rates collection varies between individual authorities, the local government finance system has been designed so that business rates income is redistributed across the country according to the needs of local areas. We will announce further details of the business rates review in due course.”